The hidden economy - Inland Revenue Department

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The hidden economy - Inland Revenue Department Powered By Docstoc
					July 2010 IR504                                                                IR504

The hidden economy

Our approach
We have an increased emphasis on targeting industries and individuals operating in the
hidden economy. Additional government funding announced in Budget 2010 will help to
improve our ability to detect and take action against those who choose cash transactions
to avoid paying tax and don’t honour their tax obligations.

We target specific industries to raise awareness of tax obligations and make compliance
easier. We take firm action when we find non-compliance.

As well as the industries specified in this section, we’ll continue to extend our industry
research to identify other industry groups for trends showing non-compliance with tax.
We’ll continue to raise awareness of tax obligations across all industries.

We’re getting ready for the 2011 Rugby World Cup
Inland Revenue, along with the rest of the country, is gearing up for 2011, when New
Zealand will host the seventh Rugby World Cup (RWC).

The RWC will have a significant impact on New Zealand’s economy when 20 rugby teams
and over 85,000 tourists pour into the country and spend an estimated half a billion

We’ll make sure organisations and individuals who benefit from these events are aware
of their tax obligations, report their income accurately and pay the right amount of tax.
In the lead-up to the RWC, we’re working with entertainment, hospitality and all
accommodation providers because this is where we expect a significant increase in
business activity. Even though the terms of sale forbid it, ticket scalping may be an
issue. So, we’ll be monitoring people who buy game tickets for resale.

We’re also putting together information about New Zealand’s tax system for players,
coaching and support staff and tourists.

The hospitality industry in New Zealand is generally characterised by a high rate of
business start-ups and closures, high staff turnover and a high level of cash
transactions. Based on our previous work with this industry, we’ve identified cases where
the reported sales and income are well below what we’d expect.

We will address non-compliance issues in the hospitality
industry by:
   continuing to raise awareness of tax obligations across the industry, making
    compliance easier                                                          Page 1 of 4
July 2010 IR504                                                                IR504

   investigating, assessing unreported income, enforcing penalties and prosecuting
    serious offenders, where necessary.

Undeclared offshore income
Some New Zealand residents receive income from offshore sources, eg, bank accounts,
foreign life insurance policies or superannuation schemes and business income. We’ve
been raising awareness of the tax issues so more individuals know they must declare
their offshore income for tax purposes in New Zealand.

We’ve increased our focus in this area and have taken part in bilateral and multilateral
investigations projects with our major tax treaty partners. As a result, we get more
information about offshore accounts and assets held by New Zealand tax residents.

We will address issues around undeclared taxable
offshore income by:
   increasing our data-matching activities and investigating under-reporting of income

   negotiating further tax information exchange agreements with offshore finance

   enforcing sanctions and penalties for non-compliance.

Scrap metal
The scrap metal industry has grown rapidly in the past decade and is now a significant
export industry for New Zealand with an annual turnover of $2 billion.

The industry offers “cash for scrap”. This common practice raises a number of tax issues,
such as traders keeping accurate records of payments made and dealers returning
payments for supplying scrap metal as income for tax and GST purposes.

We will address compliance in the scrap metal industry
   partnering with industry associations to provide information

   identifying industry non-compliance through our own research and external data

   investigating, applying penalties and prosecuting serious offenders, if necessary.

Agricultural and horticultural contractors
Tax evasion schemes have been operating in the agricultural and horticultural industry
for some time. But, we’ve seen a significant decrease in illegal tax activity as a result of
our ongoing focus on the industry and through law changes, making it harder to avoid
doing the right thing.                                                           Page 2 of 4
July 2010 IR504                                                               IR504

“Invoice writing”, a common tax evasion scheme used by members of the industry, and
other schemes have resulted in some contractors greatly reducing their GST, PAYE and
income tax liabilities. Our investigations have resulted in issuing amended assessments
to a number of horticultural contractors and in several prosecutions.

We will continue to address agricultural and horticultural
contractors’ non-compliance by:
   developing and enhancing relationships with local and national industry participants
    and stakeholders

   raising awareness in the industry about the schedular payment rules and new laws
    applying to vegetable growers

   managing and reviewing applications for certificates of exemptions

   identifying industry non-compliance

   adopting a range of activities to improve compliance, eg, investigations, applying
    penalties and prosecuting serious offenders.

Organised crime
We continue to have a specific focus on organised crime groups. In the past year we’ve
fought organised crime and complex fraud through an inter-agency
partnership approach.

A major driver of organised crime is to get income from illegal activities. So, we’ve
continued to work with the Combined Law Agency Group, the Organised Financial Crime
Agency of New Zealand and the Serious Fraud Office.

We will address tax issues around organised crime by:
   strengthening relationships with other government agencies, working together on
    projects, investigations and increasing information sharing

   focusing on suspicious transactions to identify serious organised crime and tax

   continuing to investigate, enforce penalties and prosecute, where appropriate.

Emerging areas of focus
We’ve identified lower than normal levels of compliance in a number of industries,
including e-commerce, fishing and aquaculture and tourism. Common compliance issues
include non-registration, non-filing and non-payment of tax across a range of tax types,
eg income tax, GST and PAYE.                                                          Page 3 of 4
July 2010 IR504                                                              IR504

We will address low compliance levels in emerging areas
of focus by:
   researching the reasons for non-compliance to help us better target our resources

   gathering information to identify individuals and businesses not complying with their
    tax obligations

   broadening our knowledge of e-commerce activities and tax issues.                                                         Page 4 of 4

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